Is Risk-Free Legal Funding Too Good to be True?

In the wake of a car crash, the bills can start piling up fast. Not only do you have to meet your regular monthly expenses, but you also have to cover medical bills and other accident-related costs. You may also be pushed out of work and find that all your relief options are running dry.

In that case, it might be tempting to take out a “risk-free” litigation loan to tide you over until your case is settled.

Too good to be true? Perhaps.

Think Like the Lender

The number one reason that these loans can be a bit sticky is that the lender promises only to collect from you if you win the case. If you lose, you don’t have to pay back a dime.

Sounds pretty foolproof, right?

What do you have to lose? Well, actually, you could lose a lot.

Think of it this way. Why would the lender shell out thousands of dollars that you might not have to pay back if you lose? How could they stay in business by doing this?

The answer is that, in most cases, these lenders will assess your case and see what your chances of winning are. And if they deem you “high risk,” it is very likely to deny you credit.

Legal funding lenders are so picky about their customers that they even talk to lawyers to gather extra info on their potential clients to see if they can get their money back.

But this is a breach of attorney/client privilege. The attorney will have to disclose your medical history, details about your injuries and accident, and other bits of info you might not want a third party to know.

Another problem is that the amount of the loan is based on the strength of your case. This means that your attorney will have to review your entire case with the lender before they approve the loan.

And when you inevitably get paid at the conclusion of your case, you are going to have to pay the lender back with interest. And that interest rate can be quite high because of the additional risks the pre-settlement funding company takes.

Sometimes we’re talking rates of as much as 25 to 100 percent, especially if the lawsuit drags on for years.

For instance, if your case is churning on and on, with pre-trial motions, discovery, and depositions eating up months and months and you’ve taken a loan for $5,000, with interest accruing. By the time you reach a settlement with the defendant, you might owe $7,500 (industry average) when all is said and done.

$7,500 may not be that of a big deal if the final award or injury settlement runs into tens of thousands of dollars. But if the settlement money is not that much, it can be a big hit to your post-trial finances.

When Risk-Free Legal Funding Could Come in Handy

Sometimes, a pre-settlement loan could come in handy, especially if you are severely cash-strapped and cannot wait for your personal injury case to settle. People usually resort to this type of funding because they lack the financial assets to cover the extra expenses spurred by the accident.

Unfortunately, many insurance companies like to drag things out when a claimant has been severely injured in hopes that the claimant drops the case. Insurers know that most auto or workplace accident victims lack the funds to wait out for the personal injury claims process to complete.

That is why some insurance carriers make this process painfully slow, as experience has taught them that impatient claimants eventually drop their claims or simply run out of funds to continue.

This lowball strategy is generously applied to most types of personal injury claims, from defective product liability claims and medical malpractice claims to workplace injury claims and car accident claims.

So, if you were injured in an accident due to another person’s negligence and want to file a personal injury claim with an insurer, mentally– and financially– prepare for a lengthy battle.

People usually tap risk-free legal funds when they have run out of other options and want to pursue a high-value claim to the bitter end. Most of these people have failed to work things out with the mortgage lender, don’t have valuable assets to sell, cannot lend the money from family and friends, can no longer max out their credit cards, or a combination of all of the above.

Through pre-settlement funding, they can access a chunk of the anticipated settlement before the case settles or get a jury verdict. Plus, unlike lawsuit funding which is usually accessed through a bank or a payday lender, pre-settlement loans do not need to be paid back if the case fails.

A risk-free cash advance on the future settlement could come in handy to pay the monthly bills if you are out of work in the wake of the accident, to cover accident-related medical expenses, and to buy your lawyer extra time to negotiate a fair settlement on your behalf.

Is It Worth It?

Despite the many drawbacks, pre-settlement funding has its advantages over other types of finance, which makes it an enticing option, especially if you need emergency cash when life throws you a curveball.

Unlike banks, pre-settlement funding lenders:

• Do not take into account a bad credit score.
• Don’t factor in the applicant’s employment or financial record.
• Make the application process as straightforward as it can be.
• Don’t have extra charges or hidden fees.
• Will work directly with your attorney on the approval process.
• Will unlock the funds within 48 to 72 hours of approval.
• Agree on never seeing their money again if you lose the case.

Basically, everyone who was injured or suffered a loss due to somebody else’s negligence or reckless behavior and has filed an insurance claim or a lawsuit can apply for this type of loan.

So, is risk-free legal funding worth it?

It depends on each person’s particular situation and the facts of their personal injury case. Since the interest rates depend on those facts, each personal injury victim needs to carefully weigh the pros and cons and come up with an answer to this question themselves.

Author: Leland D. Bengtson

As a journalist, Leland D. Bengtson dedicated most of his career to law reporting. He aims to draw in the public and make people more interested in the field. He is active on multiple platforms to increase his outreach to the public. Leland tirelessly covers all types of legal issues, but he has a personal preference for medical malpractice. This is mainly because he witnessed the implications of medical malpractice on a family member.